In retail financial markets, mis-selling has become a high-profile and costly issue. Investors who lose money may sue for compensation over mis-selling if they can show their professional adviser did not tell them as much as they needed to know before they made their decision. With settlements for mis-selling claims on PPI and on interest rate swaps having run into billions of pounds, financial advisers have found out how costly it can be to fall short of requirements to disclose risk. But where does that responsibility stop? For all the regulatory and legal attention trained on definitions of mis-selling, no hard and fast rule draws the line between disclosing too little and disclosing enough. Today’s investment markets may have coined the term mis-selling, but the borders between fair und unfair selling practices were already in dispute in the second century BC when Greek Stoics tabled the ethical dilemma facing the Merchant of Rhodes.

Consider — a famine on the island of Rhodes has squeezed up the price of grain, several grain merchants from Alexandria have set sail to deliver supplies, and when one of these merchants arrives ahead of his competitors he has to choose: should he reveal more grain is on the way, or keep his knowledge to himself? Depending on his choice, buyers will pare back bids for grain, or otherwise pay extraordinary prices. For Greek Stoics, the right choice for an ethical man was to share information, even if this meant he had to settle for lower profits. For 1,500 years, this verdict stood unchallenged — endorsed by Cicero, Ambrose of Milan, and Augustine (the latter did not think salesmen were entitled to profits in the first place). However, after Thomas Aquinas (1225-1274) had another look at the issue, conventional wisdom was overturned.

Aquinas devoted an entire chapter of the Summa theologiae to the ethics of salesmanship. The gist of De fraudulentia was that a salesman had to play it straight with customers, but not to the point of undercutting his own business. Aquinas drew the fine line separating fair from unfair salesmanship with an everyday example from the trade in horses: suppose a horse was lame, then that should be made known to a buyer because lameness would only be discovered after the sale was closed. On the other hand, if a horse was blind in one eye, then a buyer could find that out without having been told and so the seller had no liability to disclose. Aquinas then turned to the Merchant of Rhodes, where the issue was not a defect in the product itself but the risk that prices might drop. Aquinas wrote that if the Merchant of Rhodes told Rhodians prices would drop soon, his goodwill was commendable — but he would have been within his rights had he kept his knowledge to himself and sold at prevailing prices. Aquinas arrived at this assessment on the grounds that whilst a salesman had to disclose defects inherent in his merchandise, fluctuations in market conditions were not intrinsic to the product. Thus, Aquinas acquitted the Merchant of Rhodes of wrongdoing.